The common misconception is filing bankruptcy means financial death. However, being financially overwhelmed by debt that is nearly impossible to pay off can leave you with limited options.
One common option is debt consolidation. It’s one of the most revered and sought-after methods for managing copious amounts of debt. It usually involves transferring all debt onto a credit card, particularly one with 0% interest, or transferring debt to a fixed-rate consolidation loan.
According to NerdWallet, debt consolidation is only a palatable method when:
- Your debt (not including mortgage) is more than 40 percent of your gross income.
- You qualify for a 0% interest credit card or low-interest loan, due to maintaining a high credit score
- You earn enough money to make consistent payments
- You’re able to control your habits for accruing debt in the future
However, consolidating debt is not a good idea if you don’t earn enough to pay it off within six months to a year or your debt exceeds more than half of your annual income.
A viable alternative to debt consolidation
If this is the case, you have another viable alternative to debt consolidation – Chapter 13 bankruptcy. Also dubbed “a wage earner’s plan,” a Chapter 13 will allow you to devise a plan to repay your entire debt or part of it. You may make installment payments to your creditors, which are spread out over three to five years (during which time, creditors are prohibited from pursuing collection efforts).
It’s similar to a consolidation loan, as one party distributes payments to multiple creditors. Chapter 13 bankruptcy offers some advantages to debt consolidation or Chapter 7 bankruptcy. These include:
- Avoiding foreclosure on your home: Filing for Chapter 13 bankruptcy can help debtors save their homes from foreclosure and correct mortgage delinquency over time. In addition, Chapter 13 allows debtors to make up for previously missed mortgage or car loan payments.
- Credit report: Unlike Chapter 7 bankruptcy, a Chapter 13 will only stay on your credit report for seven years.
- Rescheduling secured debts: Any other secured debts, besides your mortgage, can be extended through a Chapter 13, which could lower the monthly payments and protect co-signers.
How to file for Chapter 13 bankruptcy
Whether you’re an individual or an unincorporated business, you are eligible for Chapter 13 under the following terms:
- Your individual unsecured debts are less than $394,725.
- Your secured debts are less than $1,184,200.
- You received credit counseling from an approved agency within 180 prior to filing.
You may be prohibited from filing if a prior bankruptcy petition was dismissed within the preceding 180 days because:
- You failed to appear in court.
- Failed to comply with court orders.
- You were voluntarily dismissed after creditors recovered property they hold liens on.
If you intend to file for bankruptcy, it’s crucial that you first speak to an experienced South Carolina bankruptcy attorney before making any decisions. Matthews & Megna, LLC know how the system works and can help you navigate your way through the process.
Take control of your financial freedom and contact us today to learn more.